Wednesday, October 15, 2014

Specialization: A Smart Way to Maintain Growth

While Amazon and Apple were integrating more payment services into their operations, eBay decided to spin off PayPal by the end 2015. EBay CEO John Donahoe said that splitting up would put eBay and PayPal in better competitive positions.

Some analysts applaud eBay’s decision and remain optimistic about eBay’s potential. Others, in contrast, think separating will slow down eBay’s growth. They are questioning eBay’s strategy and warn of serious implications for shareholders. EBay is facing increasing competition from Amazon, Google and Alibaba, and its spin off plan is a smart move for eBay and PayPal to expand their online shopping and payment services. 

With independent financials, eBay, as an e-commerce company, can focus on growing online business to either compete or co-operate with other e-commerce giants. PayPal would no longer be beholden to eBay, and would be free to negotiate their own terms. PayPal, which brought in $6.6 billion dollars for eBay last year, will likely attract multiple buyers after the spin off. 

Conglomerate companies have long struggled to balance increasingly diverse offerings in a rapidly changing market. Specialization seems a smart way for large enterprises to maintain growth. Recently, Hewlett-Packard Company took a cue from eBay and planned to separate its personal computer and printer business from its hardware and service solutions operations. If the division goes off as anticipated, it would give rise to two publicly traded companies, each with more than $50 billion in annual revenue, according to the Wall Street Journal.

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